TCF goofs on golden gopher terror transactions

January 31, 2013

TCF Bank Stadium at Univ. of Minn.

Iranian students at the University of Minnesota engaging in possible terrorist financing activities have been allowed to maintain accounts with TCF Financial Corp. until now, as lapses in the bank’s compliance program have come to light during a federal probe.

Several of accounts will be closed despite “concerns that innocent people were being profiled.” It is unclear why individual account holders should be concerned or who is raising the concerns, since the bank (not depositors) is the party receiving the penalty.

TCF will pay a $10 million fine as part of a consent order with the federal government for its compliance shortcomings, which included filing slipshod suspicious transaction reports (STRs) of “poor quality.”

Hat tip to Sal Imburgia for sending this in. From the Minneapolis Star Tribune:

TCF to pay $10 million for lapses in monitoring suspicious transactions

The fine, announced Friday by the Office of the Comptroller of the Currency, caps a long-running probe of the Wayzata bank’s compliance with the Bank Secrecy Act. TCF mishandled mandatory reports regarding questionable dealings, a key tool for law enforcement to prevent money laundering and other illegal activity, federal officials said.

At issue were cash transactions that appeared to be manipulated, and wire transfers where the source and purpose of the funds were unknown, the OCC said.

The Bank Secrecy Act requires financial institutions to make sure illegal money doesn’t flow through their organization, and regulators have stepped up enforcement in the past few years.

Last month, British banking giant HSBC agreed to pay $1.9 billion to settle an investigation focused on laundering money from drug traffickers in Mexico and conducting transactions with sanctioned countries, such as Iran and Cuba. More recently, the Federal Reserve hit JPMorgan Chase & Co. with a cease-and-desist order requiring it to beef up compliance.

As for TCF — the third-largest bank in Minnesota with $19 billion in assets — regulators said the lender botched its required reports.

Between November 2008 and July 2010, TCF was late filing 2,357 reports of suspicious transactions, according to the consent order from the OCC. The filing goes on to say that in 13 cases, involving about $7.2 million, the bank failed to properly file reports “related to transactions indicative of possible terrorist financing.”

The reports to law enforcement were of “poor quality,” it said. In some cases the bank didn’t check the “terrorist financing” box on reports when the narrative section referenced possible terrorist activity, and in other cases the narrative didn’t make clear what sort of suspicious activity had taken place.

In addition to paying the fine, TCF agreed to refile the 13 reports and do employee training, according to the consent order.

TCF issued a statement Friday saying it overhauled its program for complying with the Bank Secrecy Act. It called the settlement a “significant step” toward resolving the consent order that regulators issued against the bank in 2010.

“Banks have every way in the world to track this stuff,” Bush said. “They certainly know what comes in and what goes out of their banks on a daily basis.”

Bush said she thought TCF’s $10 million fine was relatively small: “It seems to be more symbolic than anything else.”

TCF CEO William Cooper was traveling late Friday and couldn’t be reached for comment. In an interview, spokesman Jason Korstange said the bank did a “very, very thorough examination of all our accounts.”

“Ultimately we did not find any terrorist activities,” Korstange said.

The settlement sheds some light on the mysterious letters the bank sent last month to about a dozen students at the University of Minnesota who are from Iran. The letters, in which TCF warned it might close their accounts, triggered concerns that innocent people were being profiled.

Korstange said the bank is still working through that matter. TCF has an exclusive agreement with the university to offer checking accounts linked to school photo ID cards.

A spokesman for the University of Minnesota on Friday declined to comment on the fine, saying it was a matter between the bank and regulators.

Korstange said the bank has not closed any Iranian student accounts unless they were dormant. The students are a small part of a larger number of customers TCF has contacted to get more information on transactions going through their accounts. He wouldn’t detail the information being sought.

Korstange said he didn’t how many TCF customers were ultimately affected, only that it was “well over 100.” It’s a small portion of the more than 1 million people who have checking accounts with the bank, he said.

Under the current regulatory scheme, bank rules for customers from Iran are particularly strenuous, he said.

“We’ve called, we’ve written additional letters, we’ve had meeting with some of the students to get them to come in and answer some of the questions,” he said. “Even after they’ve answered the questions, there’s still a great possibility we’re going to have to close some of the accounts.”

The Bank Secrecy Act covers a range of illicit activity and financial institutions are required to file suspicious-activity reports with the Financial Crimes Enforcement Network, or FinCEN, an arm of the U.S. Treasury. Law enforcement uses the database of reports to track activity.

Korstange acknowledged Friday that its procedures fell short and said it has a new software program to flag unusual bank transactions.

No reference is made in the article to the large Somali community in Minneapolis or the suspension of all remaining bank wire services in Minnesota to Somalia in late 2011. However, given the history of terrorist financial activity based in Minnesota, it is fair to speculate that these findings may have come to light while investigating the separate issue of attempted transfers to Somalia.